WASHINGTON -- President George W. Bush's national security adviser said Tuesday that Iran is the biggest challenge President-elect Barack Obama will face in the Middle East and that more sanctions will be needed to force Tehran to forgo its nuclear ambitions and support for extremists. 

Outside the Mideast, the next administration's top priority should be stabilizing an increasingly volatile Pakistan, Stephen Hadley said. 

In a nearly hour-long interview with The Associated Press, Hadley said the Bush White House has been trying to "shore up and store up leverage" on Iran to bequeath to the Obama administration. Obama's challenge, he said, will be to use those sanctions to force Iran to change its behavior. 

Saying that European officials have pointed to Tehran's dependence on gasoline imports and its need for additional refining equipment, Hadley added that "one of the questions is whether these kinds of vulnerabilities provide a potential source of leverage, and this is the kind of dialogue that we will continue to have with the Europeans." 

While the Middle East presents challenges, he said that Obama may also find his biggest foreign policy opportunity there, in the form of a peace accord between Israel and the Palestinians. 

That's a lofty goal considering the recent escalation of violence between Israel and Hamas, the militant group that controls the Gaza Strip. 

Last month, Obama suggested that a combination of economic incentives and tighter sanctions might persuade the Iranian government to change its behavior and alter its nuclear program. The U.S. and its allies believe that Iran is pursuing nuclear weapons capabilities and has demanded it suspend its enrichment program, but Tehran insists it is interested only in nuclear power generation. 

Iran, however, has rejected the carrot-and-stick approach as unacceptable and insists it has the right to continue. 

Hadley would not offer advice on whether the incoming administration should increase dialogue with Iran. But, he said, the U.S. "would be foolish to talk without leverage, because talking and negotiating without leverage won't get you a deal that will advance your interests. ... If you want to change the behavior of a country like Iran, you have to have leverage." 

And right now, he said, the U.S. is still short of the leverage needed to force that change.